Joe Smith is the owner of a thriving medium-sized business. He and his employees have put in long hours and have worked hard to nurture and grow the company to become the successful business it is today. Then all of a sudden, Joe is faced with a contractual dispute and doesn’t know where to turn.
Numerous decision-makers stumble across this all-too-familiar scenario, especially those whose companies have grown significantly over the past 10 years. They realize that they have focused all their attention on doing what they do best — selling products or providing services — and they’ve overlooked the important legal aspects of successfully running their company.
Over the past year, Jeffrey Knoll, chair of Stark & Knoll’s corporate law department, and John Susany, chair of Stark & Knoll’s litigation and employment law department, have been encouraging many of their clients who own small and medium-sized businesses to undergo a corporate audit, before the find themselves in trouble.
“Too many times, we find that people call a lawyer when they get in trouble, and at that point, it’s usually too late,” Knoll says. “A little bit of preventive maintenance can go a long way in saving a company from the headaches of litigation or a contractual dispute, because once you get into those disputes, you just end up looking at spending an awful lot of money.”
Susany says a legal business audit is both a diagnostic tool and a prophylactic measure. An attorney can tailor the audit to the client’s practice or profession and recommend actions the client can take to help avoid future litigation issues. Initially, business owners don’t like the additional outlay of legal costs, but when they look at the cost-benefit analysis of having a legal business audit, Susany says they discover that it saves them a lot of money in the long run.
“It is rare that somebody will do everything right or be completely lawyered up, because that’s not how businesses work,” he says. ” … (A legal business audit) is an integrated process bundled up at the front end, as opposed to randomly reacting to a problem.”
Knoll says his firm wants its business owner clients to revisit their legal issues every few years, especially if they’ve made drastic corporate changes such as acquisitions or have new requirements due to new financing. They encourage business owners to take a proactive approach with their legal issues and to ask themselves these questions. (See sidebar for specific topics.)
* Has your business grown from 10 to 20 employees, which may now require that you have different legal policies in place?
* Have you started doing business in different locations, where different sales tax issues may apply?
* Do you conduct business over the Internet?
* Are your terms and conditions listed on your Web site so your online customers are subject to them?
Oftentimes, the smallest changes in the way a business runs can lead to legal problems down the road.
“There are a lot of businesses that are doing things right because they’ve had the benefit of legal counseling, but their business has changed — new markets, doing things overseas, new products, acquisitions. Your terms and conditions that you had in your handbooks have been absolutely appropriate, but once you start going overseas or introducing different products, you have different issues,” Susany says.
“Business isn’t static, so your legal formalities can’t be static, either.” How to reach: Stark & Knoll, (330) 376-3300 or stark-knoll.com
Bite the bullet
If it’s time for a legal business audit for your business, Stark & Knoll’s Jeffrey Knoll and John Susany suggest you review these areas with an attorney.
* Handbooks and policies. Certain federal laws, such as the Americans with Disabilities Act and the Family and Medical Leave Act, kick in when businesses reach a certain numbers of employees. Companies may also have specific drug-testing policies or affirmative action issues.
* Noncompete and confidentiality agreements. Many business owners are so concerned with creating new technology that they don’t consider what happens when an employee who co-creates a product decides to leave the company.
* Inventions and who owns them. Company decision-makers need to know who owns the rights to inventions used by the company and how to protect them from the outside business world.
* Terms and conditions for e-commerce and printed forms. In the past, terms and conditions were printed on the back of a customer’s purchase order. With purchase orders now getting faxed or e-mailed or appearing on a Web site, the terms of the deal can drastically change if they are not clearly communicated.
* Corporate formalities. Susany says Ohio corporations have to host annual meetings, have shareholder meetings, provide financial information to shareholders and more. Acting like a corporation is a necessity if the company expects to be treated like a corporation.
* Review of insurance coverage. A legal business audit helps decision-makers learn about insurance policies that are available, including employment insurance and business interruption insurance. Though no substitute for an insurance auditor, an attorney can suggest policies to consider and how to best minimize risk.
